How Payroll Processing Works, and How to Do It Correctly

What is Global Payroll Processing?

Global payroll processing is the end-to-end process you use to pay your team accurately, on time, and in line with legal and contractual requirements. It sits at the intersection of labor law, taxation, HR operations, and internal controls, all of which need to work together to keep things running smoothly.

For global teams, (whether you’re a startup or an enterprise) understanding the payroll processing process changes by country, employment model, and local regulation. You need to collect the right data, apply local pay rules, calculate earnings and deductions, remit taxes correctly, and keep records that can stand up to audits.

In practice, payroll processing typically includes:

• Collecting data for your team such as hours worked, salary details, leave, and bonuses
• Calculating gross earnings for each pay period
• Applying statutory deductions like taxes and social contributions
• Applying voluntary deductions including benefits, retirement contributions, and garnishments
• Calculating net pay and preparing payslips
• Issuing payments through bank transfer or direct deposit
• Filing payroll taxes with local authorities
• Remitting employer and employee contributions
• Maintaining accurate, compliant payroll records

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Global Payroll vs Local Payroll (What Changes When You Go Multi-Country)

Payroll usually feels straightforward when everyone is based in one country. For example, if your entire team is in Portugal, you only need to understand one set of tax rules, contribution rates, and payroll deadlines. The process repeats each cycle, exceptions are easy to spot, and compliance becomes predictable over time.

Once your team spans multiple countries, that simplicity disappears. Hiring in Spain and Germany in addition to Portugal means you’re now trying to manage multiple payroll systems, deadlines, and labor laws.

A pay run that feels routine can break down when tax filings are late, reporting requirements are missed, or employment actions – like terminations – don’t follow local law. These are some of the most common ways teams get caught out.

The impact of faulty payroll is real and often immediate:

• Trust erodes when your team is paid late or incorrectly
• Penalties and interest add up when filings or payments are wrong
• Audit exposure increases when records don’t meet local standards
• Reputational damage makes retention and hiring harder over time

Your team depends on payroll being right every pay cycle. They’re planning around those payments – rent, mortgages, family expenses – and they don’t see the complexity behind the scenes.

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Global Payroll Models: Which Setup Are You Actually Running?

When companies talk about “running global payroll,” they’re often describing very different setups. That matters, because who employs your team, who runs payroll locally, and who is legally responsible all directly affect how payroll works  – and ultimately, where risk sits.

Each model relies on a different combination of in-house teams, local providers, or third-party payroll service partners.

Full Payroll Control and Work With Local Payroll Providers

In this model, your team is employed directly by your company and you work with a local payroll provider in each country to run payroll. Each provider handles payroll calculations, tax filings, and payslips based on local rules.

You are responsible for:

• Funding payroll in each country
• Ensuring taxes and social contributions are paid on time
• Staying compliant with local employment laws

This setup gives you full control, but it also means you’re responsible for managing multiple vendors, multiple contracts, and multiple payroll calendars. Reporting is often fragmented, and mistakes in one country don’t show up until it’s too late. All of the compliance risk sits with you.

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Playroll’s Global Payroll Services replace fragmented local payroll providers with a single, unified solution. We become your main payroll partner across countries and entities, delivering one source of truth for payroll data, reporting, and oversight.

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Centralized Payroll Platform to Process Payroll

For most companies expanding internationally, a popular approach is to use a centralized payroll platform that runs payroll on your behalf. Platforms like Playroll act as your single payroll vendor, replacing a patchwork of separate providers in each country.

Behind the scenes, these platforms often partner with local payroll vendors, but you only deal with one provider. Payroll inputs, calculations, filings, and payments are managed for you in one system, creating a consistent experience across countries while offloading much of the operational work.

This model reduces internal workload and vendor complexity. However, because payroll is effectively outsourced, visibility and flexibility can be limited – and you are dependent on one provider’s systems, reporting, and processes.

Payroll For International Hires Through an Employer of Record

An EOR lets you hire and pay international employees without setting up a local entity. The EOR becomes the legal employer and takes care of payroll, taxes, benefits, and compliance for you.

You’ll typically use this model when you want to enter a new market quickly, hire a small team in a country, or avoid the time and cost of entity setup.

What you gain:

• Fast hiring without creating local entities
• Payroll and compliance handled on your behalf
• Less legal and administrative burden for your team
• Access to group employee benefits rates

What you trade off:

• Higher per-employee costs
• Less control over payroll processes and employment terms
• Your employees are legally employed by the EOR
• Payroll data may sit outside your core systems

This doesn’t have to be all or nothing. You can use EOR in some countries, run in-country payroll where you have entities, and mix approaches by region as you scale. The challenge is maintaining visibility and consistency across models – especially when EOR and entity payroll data live in different places.

EOR vs Direct Employment vs Contractors And Why It Matters for Payroll

How someone is hired determines how payroll must be run. This is one of the most common areas of confusion in global payroll.

Direct Employment

Your company employs the worker through its own legal entity. You run payroll, pay taxes, and manage benefits according to local law. Compliance risk sits with you.

Employer of Record (EOR)

The worker is legally employed by the EOR’s local entity, not yours. The EOR runs payroll, pays taxes, and manages statutory compliance. You direct the work, but the EOR carries most of the payroll and employment risk. Payroll rules, termination costs, and tax obligations still follow local law – they’re just handled on your behalf.

Independent Contractors

Independent contractors are not employees. They are paid via invoices, not payroll. Taxes, benefits, and protections are different – and misclassification is a major risk. If a contractor should legally be an employee, payroll liabilities and penalties can be triggered retroactively.

From a payroll perspective, these three models are not interchangeable. Each one changes:

• Who pays salaries
• Who remits taxes
• Who carries compliance risk
• How terminations and corrections are handled

How to choose between an EOR vs legal entity & the costs

How Global Payroll Processing Works End-to End

Now that we’ve covered the different global payroll models, it’s time to look at how payroll actually runs once you’re operating across borders. It should sit alongside broader workforce management efforts, requiring coordination between HR, finance, and local payroll teams across regions.

Step 1: Map Country Requirements (Tax, Labor, Statutory Benefits)

The first step in setting up global payroll is understanding the rules in each country where your team is based. Tax, labor, and benefit requirements are not standardized – they vary by country, and in some cases by region. Applying assumptions from one market to another is one of the fastest ways payroll issues appear.

To set your global payroll up correctly, you need a clear view of the following for each country:

• Local Tax System: Countries handle income tax very differently. Some do not tax employment income at all, while others tax both local and foreign income. Many sit somewhere in between. Knowing how income tax, social contributions, and employer obligations work locally is essential before you run payroll or file anything with authorities.
• Withholding Exemptions and Special Rules: In some countries, foreign employers may be exempt from certain withholdings or contributions. In others, exemptions apply only under specific conditions. These rules can significantly affect payroll costs and must be confirmed upfront.
• Registration Requirements: Some countries require you to register a legal entity before you can run payroll. Others allow payroll registration without full incorporation. Even when entity setup isn’t required, tax and social security registrations often are. Missing this step can delay payroll or trigger penalties.
• Minimum Wage Rules: Minimum wage laws vary widely. Some countries set a national rate, others use regional or industry-based rates, and some have no formal minimum wage at all. Payroll needs to reflect the correct local requirement.
• Public Holidays and Statutory Leave: Holidays, paid leave, and overtime rules affect payroll calculations. These differ by country and are often tied directly to local labor law.

Without the right systems or local expertise, these early setup steps can quickly become time consuming and difficult to maintain as more countries are added. The important part is knowing these rules exist and building them into your payroll process from the start.

Need a single place for country specific payroll regulations?

Our Payroll Compliance Hub brings together verified local payroll, tax, and employment rules by country – so you can set up and run global payroll with confidence.

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Step 2: Build Employee and Payroll Data Correctly (IDs, Bank, Contracts)

Once country requirements are clear, the next step is building accurate international employee and payroll data. This information feeds directly into payroll calculations, tax filings, and salary payments. Mistakes here don’t always show up immediately – but when they do, they’re often hard to correct.

For each country, payroll relies on three key data areas:

1. Employment and Tax Identifiers

Every country uses different identifiers for employers and workers. These can include employer registration numbers, employee tax IDs, or social security numbers. Some are issued nationally, others locally. Before running payroll, you need to know which IDs are required, who applies for them, and when they must be in place.

2. Banking and Payment Details

Payroll only works if payments go through on time. That means collecting correct bank details and understanding local payment rules. Some countries require in-country bank accounts. Others allow international transfers. Small formatting errors can delay payments, even when everything else is correct.

3. Employment Contracts and Compensation Details

Payroll calculations are based on what’s written in the contract. Salary, pay frequency, bonuses, allowances, overtime, and benefits all matter. Contracts must align with local law – especially when it comes to statutory benefits and terminations.

Step 3: Configure Pay Elements by Country

Once employee data is in place, the next step is configuring how people are paid – and this is where country rules and employment type really start to matter. The same pay setup won’t work everywhere, and the way someone is classified directly affects payroll calculations, taxes, and benefits.

Employee type determines which pay elements apply and how payroll must be run. While terminology varies by country, most teams fall into a few common categories.

Full-Time and Part-Time Employees

Full-time and part-time status affects pay frequency, benefits, overtime, and statutory contributions. What counts as “full-time” isn’t universal – some countries define it by hours, others by contract terms.

Payroll needs to reflect:

• Whether pay is salaried or hourly
• Eligibility for statutory benefits
• Local rules around overtime and leave

Temporary and Seasonal Employees

Temporary and seasonal workers are hired for a defined period, but payroll obligations still apply. In many countries, these workers are entitled to the same tax treatment and protections as permanent employees.

• Contract length affects payroll end dates and final pay
• Statutory contributions often still apply
• Termination rules can differ from permanent roles

Freelancers and Independent Contractors

Contractors are not paid through payroll in the same way as employees. They’re typically paid against invoices and handle their own taxes. That said, misclassification is a major risk.

• Payroll deductions usually do not apply
• Tax authorities may reclassify contractors as employees
• Retroactive payroll liabilities and penalties can follow

Global Payroll, Run Locally

We combine global reach with local payroll expertise to help you stay compliant and pay your team accurately, everywhere you operate.

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‍Step 4: Set Pay Cycles And Cutoffs By Region

Once employee types and pay elements are configured, the next step is setting pay cycles. Pay frequency is regulated in many countries and choosing the wrong cycle can put you out of compliance.

Most companies use one of the following pay cycles:

• Monthly
• Semi-monthly
• Biweekly
• Weekly

What matters is not only how often you pay your team, but when payroll is finalized. Each country has its own rules around pay dates, cutoff periods, and funding timelines. For example, Luxembourg requires salaries to be paid on the last working day of the month, while Mexico mandates different pay cycles depending on the role – weekly for blue-collar workers and biweekly for white-collar workers.

Pay cycles also affect funding and cash flow. Payroll needs to be funded ahead of payday, often in local currency, and late funding can delay salary payments even if calculations are correct. Setting clear regional cutoffs helps ensure there’s enough time for approvals, compliance checks, and payment processing before salaries are due.

Step 5: Run Gross-To-Net Calculations and Validations

At this point, you’re ready to actually calculate pay. Gross-to-net calculations determine what your team takes home after taxes, contributions, and deductions – and this step is where accuracy really matters.

Gross pay starts with agreed compensation. From there, country-specific rules are applied to calculate deductions and net pay. These rules vary widely and often include:

• Income tax based on local tax brackets
• Employee social security or pension contributions
• Employer contributions that don’t affect net pay but must be reported
• Statutory benefits or mandatory deductions
• Approved voluntary deductions, where applicable

After calculations are complete, payroll needs to be validated before payments are released. At Playroll, we do the actual calculation, validation, and payouts for you with automated variance checks and a dedicated R&D team. This review step helps catch issues that are difficult or impossible to fix later.

• Check calculations against local tax and contribution rates
• Confirm deductions align with employment contracts and local law
• Review outliers such as unusually high or low net pay
• Validate final pay for new hires, terminations, and bonuses

“With our service, we give our clients a one stop shop to see everything related to their payroll run in every territory they’re operating in one interface. That makes their operations easier from both a budgeting and analysis perspective.”

Julia Veigas

Payroll Operations Team Lead at Playroll

Step 6: Set Up Funding, FX, And Payment Rails

Once payroll is calculated, the focus shifts to getting salaries paid correctly and on time. Funding, currency conversion, and payment methods vary by country, and missteps here can delay payroll even when calculations are accurate.

In many regions, payroll must be funded in advance and often in local currency. Banking timelines, public holidays, and local cutoffs all affect when funds need to be available. If you’re paying from a central account, foreign exchange timing and rate fluctuations can also impact payroll amounts and reconciliation.

Payment rails differ by country. Some require salaries to be paid from an in-country bank account, while others allow international transfers through approved methods. Setting up funding, FX, and payment rails by region helps ensure salaries land on time, every pay cycle, without last-minute fixes or manual workarounds.

Step 7: Prepare For Approvals and Payroll QA Controls

Before payroll is finalized and paid, it needs to go through review and approval. This step acts as a quality check to catch errors before they become costly or irreversible. In global payroll, approvals and Quality Assurance (QA) controls are especially important because many mistakes can’t be corrected after the pay date.

Payroll QA typically focuses on validating inputs and outputs across countries. This includes:

• Reviewing gross-to-net calculations for accuracy
• Checking tax rates and statutory deductions against local rules
• Confirming payroll changes such as new hires, terminations, bonuses, or salary updates
• Flagging unusual variances in net pay or total payroll cost

Approvals should be structured and consistent. Clear approval workflows help ensure the right people review payroll at the right time, and that changes are documented before payments are released. In multi-country payroll, this often means coordinating between local teams, finance, and global payroll leads.

Strong QA controls reduce the risk of overpayments, underpayments, and compliance issues – and give you confidence that payroll is correct before salaries go out the door.

Step 8: Pay Employees and Deliver Compliant Payslips

Once payroll is approved, salaries are ready to be paid. This step is about executing payments on time and through the correct channels. Payment methods, timelines, and banking requirements vary by country – and even small setup issues can cause delays or failed transfers, regardless of whether payroll calculations are correct.

Payslips must also meet local legal requirements. Many countries require specific details to be shown, such as gross pay, itemized deductions, employer contributions, and net pay. Some mandate delivery by a certain date or in the local language.

Step 9: File, Remit, and Close The Period

After payroll is paid, there are still required actions to complete. Taxes and social contributions must be filed and remitted to the correct authorities, according to local deadlines. This includes reporting wages, employee withholdings, and employer contributions. Missing a filing or submitting incorrect information can trigger penalties, even if salaries were paid correctly.

This step also involves closing out the payroll period. That means issuing required tax documents to your team, maintaining complete payroll records, and confirming that filings, payments, and reports are accurate and complete. Strong recordkeeping is essential – not only for compliance, but also for audits, corrections, and future payroll runs. Closing the period properly ensures nothing is left open or unresolved before the next pay cycle begins.

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The Global Payroll Calendar: A Realistic Pay-Run Timeline

Running global payroll is a multi-day process with dependencies that start well before salaries are released. Teams that treat payroll as “something we do on pay day” are the ones most likely to run into delays, last-minute fixes, and avoidable errors.

A realistic pay-run timeline builds in real time, checking, approving, and rechecking before it’s too late to intervene. Below is what a typical global payroll cycle looks like in practice.

T-5 to T-3 Days: Input Collection and Variance Checks

T refers to payday, so T-5 to T-3 days means five to three business days before employees are paid. This is the stage where payroll preparation really begins, and timing matters – especially in a multi-country setup where deadlines vary by country. This is where payroll preparation really begins. Data is collected and reviewed across all countries in scope.

• New hires, terminations, and contract changes are confirmed
• Variable pay such as bonuses, overtime, and allowances is finalized
• Time and attendance data is locked, where applicable

At this stage, payroll teams also run variance checks. Large changes in gross or net pay are flagged and reviewed before calculations are finalized. Catching issues here is far easier than trying to correct them later in the cycle.

“Onboarding and terminations are where global payroll gets most complex. Each country has its own documentation and statutory requirements, and without consolidated local knowledge, knowing where to start is incredibly challenging.”

Jed Behrmann

Payroll Operations Manager at Playroll

T-2 to T-1: Approvals, Funding Confirmation, FX Locking

Once inputs are validated, payroll moves into review and approval. This usually involves multiple stakeholders – local payroll, HR, and finance.

• Payroll results are reviewed and approved
• Funding amounts are confirmed by country and currency
• Foreign exchange rates are locked, where required

This is also when timing becomes critical. Missed approvals or late funding can delay payroll, even if everything else is correct. For multi-currency payroll, FX delays are a common failure point if they’re not planned for in advance.

Pay Day: Payment Release and Payslips

On pay day, salaries are released through the appropriate payment rails.

• Payments are sent via local or approved international methods
• Payslips are issued in line with local legal requirements
• Delivery timing is monitored to confirm funds land as expected

If something goes wrong at this point, options are limited. That’s why most of the real work happens before pay day, not on it.

T+1 to T+5: Reconciliations, Filings, and Reporting

Payroll doesn’t end once employees are paid. After pay day, teams focus on closing out the cycle.

• Payroll results are reconciled against funding and payments
• Statutory filings and tax remittances are completed
• Reports are finalized and records are archived

This post-payroll window is critical for compliance and audit readiness. Issues left unresolved here tend to surface later, often during audits or regulatory reviews.

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Common Global Payroll Mistakes We See Happening

Even experienced teams make mistakes when payroll goes global. Most issues aren’t caused by lack of effort – they’re caused by underestimating how different international payroll really is.

Misclassification and Contract Mismatches

One of the most common problems is misalignment between how someone is classified and how they’re paid. Contractors are treated like employees. Employees hired under contracts that don’t reflect local law. These issues often go unnoticed until a termination, audit, or tax review brings them to the surface.

Bad Data In: Bad Payroll Out

Payroll systems only work if the data going in is accurate. Incorrect bank details, outdated tax IDs, or missing contract information almost always lead to payroll errors. These mistakes are rarely visible at the input stage – they show up later as failed payments or incorrect deductions.

Underestimating Cutoffs and Time Zones

Global payroll runs across time zones, banking systems, and public holidays. Teams often underestimate how early inputs need to be finalized or funding needs to land. What feels like a small delay in one region can cause missed pay days in another.

Shadow Payroll Spreadsheets and Reconciliation Gaps

When systems don’t feel reliable, teams fall back on spreadsheets. Shadow tracking creates version-control issues, manual errors, and reconciliation gaps that are hard to unwind. Over time, this increases risk and reduces visibility instead of solving the underlying problem.

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How to Make Global Payroll Compliance Truly Easy

Global expansion brings real payroll complexity – multiple countries, currencies, regulations, and timelines running at once. The challenge isn’t just paying your team on time. It’s keeping payroll accurate, compliant, and predictable as you grow, without adding layers of manual work or relying on fragile processes that break under pressure.

Playroll’s Global Payroll service is designed for that reality. We run payroll for clients that have their own entity, supported by local expertise, and bring everything together in a single platform. With consolidated analytics and coordinated payroll management across countries, you get visibility, consistency, and control – so global payroll becomes something you can rely on, not something you’re constantly fixing.

Book a demo with our team and let’s chat about how we can help you get your global payroll system up and running the way it should.